The current market conditions in Las Vegas are creating trauma and delight. Which of these emotions you are experiencing depends on the price point at which you entered the market. Unfortunately around 75% of folks are upside down in their mortgages, so the majority of homeowners are enduring some stressful times. On the other hand, cash-rich investors are swooping in with their eyes on some healthy capital gains once the world stops coming to an end. Welcome to the world of Las Vegas foreclosure homes.
Fifth and Farm subdivision as an example (near North Fifth Street and Tropical Parkway) is a microcosm of the Las Vegas market as a whole. Built in 2004 and 2005 this North Las Vegas community is in line with North Las Vegas’s foreclosure rate of one in fifteen properties. The Las Vegas Review Journal examined over 100 properties in the Fifth and Farm subdivision, and reported that 50 were owned by the original buyer, who purchased for roughly between $150,000 and $220,000; 25 had been purchased in 2006 or 2007 for as much as $330,000 and $325,000. The later you were to the party, the worse its music sounds. And moving to the reality of today’s post-party devastation the journal notes that over the past 18 months, 26 homes were purchased for prices between $80,000 and $185,000. Almost all of these were foreclosures.
Half of the houses in Fifth and Farm are owned by investors for rental income, and it is a familiar story across the valley to see new homes acquired for rental yields being the first to foreclosure. This is creating a situation where new communities are becoming low-level rental resorts. What do we mean by this? Well, consider that 25,000 homes built in Clark County between the boom years of 2004 and 2007 have been foreclosed on since 2007, whereas 24,700 of foreclosed homes were built between 1980 and 1999. The new investor-driven communities are if not crumbling, then under extreme pressure.
One of the factors compounding the problem of Las Vegas foreclosure homes is that as foreclosed properties are bought by yield-driven investors they end up lowering the community standards, and this in turn encourages other under water homeowners to walk away from their debt obligations. It sounds rough in black and white, but it is a fact that investors buying at lower acquisition prices need lower rents to meet their returns, and tenants paying lower rents are from lower income brackets. So now you have a family that paid $300,000 for their house living next to a family that pays $700 a month for rent. I am not saying that either social group is better that the other, but they are two different social groups, and that is having one major impact: the homeowners at the higher price points are walking away from their mortgages because they want to walk away from their neighborhoods.
